Featured Product

    Fritz Zurbrügg of SNB on Mitigation of Systemic Risk in Switzerland

    September 10, 2018

    BIS published a speech by Fritz Zurbrügg of SNB, wherein he discussed the causes and effects of “too big to fail” (TBTF) and how it manifests itself in Switzerland, before moving on to discuss the reasons the banking regulation before the crisis did not sufficiently address the risks posed by TBTF or systemically important banks. He also described the country’s implementation status regarding the wide-ranging regulatory measures taken at international and national levels to resolve TBTF. He believes that the Swiss big banks and the Swiss banking system are much more “weatherproof” today than they were ten years ago.

    As per Mr. Zurbrügg, in Switzerland, the response was quick, targeted, and cost-effective. The regulatory amendments strengthened the resilience of banks and introduced measures to ensure that even a systemically important bank can exit the market in an orderly way in the event of a crisis. Although many of the planned measures have already been implemented, the conditions for resolving TBTF in Switzerland will be in place only after the agreed measures have been fully implemented. With regard to the regulatory response to the TBTF issue, he explained that Swiss regulations in this area rest on two complementary pillars with special requirements for systemically important banks. The first pillar defines measures to strengthen the resilience of these banks and thus reduce the likelihood of a systemically important bank getting into financial distress. The second pillar of the TBTF regulations comes into play in the event that a systemically important bank gets into financial distress, despite increased resilience. It is intended to ensure that a bank is resolvable. For this purpose, the regulations stipulate requirements for resolution planning. By the end of 2019, systemically important banks in Switzerland must prepare “emergency plans” to be able to continue their systemically important functions in Switzerland without interruption in the event of a crisis. The second pillar also specifies requirements for loss-absorbing capacity. Banks can use “bail-in” instruments for this purpose. These are essentially debt securities that can be converted into equity or written down in the event of impending insolvency. 

    Regarding the status of the fulfillment of these requirements, the latest Financial Stability Report, which was published in June, stated that implementation is already well under way. In terms of the first pillar of the regulations—both big banks are on track. They fully meet the requirements for risk-weighted capital that will apply from the end of 2019. As far as the second pillar—resolution—is concerned, the two big banks (UBS and Credit Suisse) have made further progress. They already meet some of the requirements in full, namely those related to the gone-concern loss-absorbing capacity. However, more progress needs to be made in increasing resilience with regard to the leverage ratio. The work that still needs to be done under the second pillar should not be underestimated. To ensure that a bank can be resolved in an emergency, further progress is needed, particularly in three areas. First, resolution funding plans need to be drawn up, which FINMA, as the competent authority, is in the process of doing. Second, loss-absorbing capacity must be ensured at the level of each individual entity within the big banks. Previously, the focus was on loss-absorbing capacity at consolidated group level. Third, both big banks must further reduce the financial and operational dependencies within the group. In addition, the two big banks need to finalize the required emergency plans for Swiss institutions with systemically important functions by the end of 2019.

    He concluded: “We are confident that full implementation of the Swiss ‘too big to fail’ regulations will reduce the false incentives that underlie the issue and create the necessary conditions for resolving the issue here in Switzerland. The state should no longer be obliged to use government funds to bail out a bank.”

     

    Related Link: Speech

    Keywords: Europe, Switzerland, Banking, TBTF, Systemic Risk, Resolution Planning, TLAC, Leverage Ratio, SNB, BIS

    Featured Experts
    Related Articles
    News

    FCA Consults on Regulation of International Firms in UK

    FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.

    September 23, 2020 WebPage Regulatory News
    News

    MAS Amends Notice on Capital Adequacy Requirements of Banks

    MAS published amendments to Notice 637 on the risk-based capital adequacy requirements for reporting banks incorporated in Singapore.

    September 23, 2020 WebPage Regulatory News
    News

    FCA to Begin to Move Firms to New Data Collection Platform RegData

    FCA announced that it will move firms to RegData from Gabriel in the coming months in stages, based on the reporting requirements of firms.

    September 23, 2020 WebPage Regulatory News
    News

    APRA Reviews Repayment Deferral Plans, Identifies Best Practices

    APRA has concluded its review of the comprehensive plans of authorized deposit-taking institutions for the assessment and management of loans with repayment deferrals.

    September 22, 2020 WebPage Regulatory News
    News

    ESAs Assess Risks to Financial Sector After COVID-19 Outbreak

    ESAs (EBA, EIOPA, and ESMA) published the first joint report that assesses risks in the financial sector since the outbreak of the COVID-19 pandemic.

    September 22, 2020 WebPage Regulatory News
    News

    BoE Confirms Withdrawal of COVID Corporate Financing Facility

    BoE and HM Treasury confirmed that the COVID Corporate Financing Facility (CCFF) will close for new purchases of commercial paper, with effect from March 23, 2021.

    September 22, 2020 WebPage Regulatory News
    News

    ESAs Launch Survey on Templates for Product Disclosures Under SFDR

    ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).

    September 21, 2020 WebPage Regulatory News
    News

    ECB Proposes Integrated Reporting Framework to Reduce Burden for Banks

    ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.

    September 21, 2020 WebPage Regulatory News
    News

    EC Deems UK Framework for CCPs Temporarily Equivalent to EMIR Rules

    EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).

    September 21, 2020 WebPage Regulatory News
    News

    EBA to Phase Out Guidelines on Loan Repayment Moratoria

    EBA has decided to phase out the guidelines on legislative and non-legislative moratoria of loan repayments, in accordance with the earlier specified end of September deadline.

    September 21, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5829